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New York attorney general seeks records from 3 Wall Street banks in probe of mortgage crisis

May 19th, 2011 3:06 PM by Lehel S.

Albany, N.Y.—

New York Atty. Gen. Eric Schneiderman is seeking records from three major Wall Street banks as part of a broad investigation into the mortgage crisis that fueled the recession, an official familiar with the issue said Tuesday.

Schneiderman was meeting with representatives ofBank of America,Morgan StanleyandGoldman Sachs, according to the official, who spoke on condition of anonymity. Those meetings were expected to focus on mortgage securities operations during the boom on Wall Street that ultimately cost banks billions of dollars.

The official said securitization of those mortgages was an area that Schneiderman would examine. Packaging mortgages into securities that investors could buy might have concealed risky loans, something critics on Wall Street said was at the center of the mortgage crisis.

The official spoke on the condition of anonymity because of the sensitivity of the continuing investigation.

There was no immediate comment from the banks.

The official said the records search was part of Schneiderman's review of factors that led to the 2008 financial crisis.

Back then, banks sold bundles of risky mortgages with teaser rates that increased after only a few years. Many borrowers ended up defaulting on the loans when the interest rates rose. As a result, the value of mortgage securities plummeted.

Experts have since said that banks had very little of their own money invested in those mortgages. That led banks to take greater risks, which contributed to the financial crisis.